The BSP reported that in October, commercial banks showed sustained preference for agriculture, fisheries and forestry where loans grew by 11.6 percent.
Loans to wholesale and retail trade followed, growing by 5.8 percent, followed by financial institutions, real estate and business services sector where loans increased by 4.8 percent.
Financial institutions, real estate and business services continued to account for the biggest share of commercial loans, cornering a total of 26.7 percent while the manufacturing sector accounted for 24.8 percent of total commercial bank loans in October.
Loans to the manufacturing sector grew by only one percent although the sector got the second biggest chunk of loans extended by commercial banks.
The BSP said the continued strength of lending to the manufacturing sector was supported by a sustained increase in capacity utilization of the manufacturing industry, up from 74.3 percent last year to this year’s 78.4 percent. This indicates that manufacturing companies are approaching the point where they would need to expand their capacities and borrow from banks to finance it.
The BSP also noted increases in commercial bank lending to community, social and personal services (4.8 percent); transportation, storage and communications (5.8 percent).
The BSP said the year-on-year growth in the demand for bank loans is supported by the steady rise in credits to both the public and private sectors which rose by 15.3 percent and 3.2 percent respectively.
"The robustness in consumption spending as well as the gradual pick-up in manufacturing activities have contributed to higher demand for bank financing by firms," the BSP explained.
The BSP is still determining the commercial banking sector’s non-performing loans (NPL) ratio and whether the sector would still be able to sustain the improvement that it reported in September when the ratio went down slightly from 14.96 percent in August to 14.49 percent.
According to the BSP, the industry’s non-performing assets (NPA) ratio also improved slightly to 13.25 percent from 13.32 percent that was attributed to the growth of gross assets which outpaced the growth of the industry’s NPAs.
On the whole, the industry’s bad loans shrank in proportion to its total loan portfolio, improving its overall profile despite the fact that there was no significant reduction in the actual amount of bad loans in the industry.
The shift in the banking sector’s NPL level, however, was met with skepticism by credit rating agencies which pointed out that the decline in NPL ratio had been due, not to the actual decline in bad loans but to the change in definitions that allowed banks to window-dress their portfolio.
In its most recent report on the Philippine banking industry, Moody’s Investors Service said it did not believe that the recent easing in reported non-performing loan (NPL) ratios indicated a fundamental improvement in asset quality.
"Instead, the lower numbers are due to definitional changes," said Moody’s analyst John Tham said.
Since September 2002, bad loans which are fully provided for have been excluded from the computation of NPL ratios, causing an artificial decline in NPLs.
On the whole, Moody’s said the outlook on the Philippine banking system was dim primarily because of the negative outlook on the country’s overall currency ratings which pulled down its expectations on Philippine banks.
Moody’s said the banking industry was also on shaky grounds because of the weakness in a number of undercapitalized banks and banks that were under rehabilitation which Tham said could cause destabilization.